July 11, 2024
MANILA – A La Niña could bring with it favorable growing conditions for crops in Southeast Asian countries like the Philippines, something that may help tame food prices and give central banks in the region more reason to be aggressive in cutting rates.
In a commentary, Ankita Amajuri, economist at Capital Economics, said the wetter weather that La Niña typically brings to the region would boost production of crops like rice, coffee and sugar, which have been adversely affected by dry conditions over the past year.
The projected increase in production, in turn, might convince central banks in Southeast Asia to be more forceful with their rate cuts, Amajuri said. But she added that the extent to which above-normal rainfall conditions affect production will depend on the strength and duration of the event.
“Our view is that central banks in the region will begin cutting interest rates later this year,” she said.
”La Niña increases the odds that easing cycles will be even more aggressive than our forecasts, which are already more dovish than the consensus,” she added.
The World Meteorological Organization is currently forecasting a 70 percent chance of a La Niña between August and November. In the Philippines, the state weather bureau said there’s a possibility that the onset of such a weather phenomenon would happen much later in September.
Capital Economics expects the Bangko Sentral ng Pilipinas (BSP) to ease by a total of 75 basis points this year, which would bring the key rate to 5.75 percent by the end of 2024 from the current level of 6.5 percent, an over 17-year high.
That projection was more aggressive than the dovish signals coming from Governor Eli Remolona Jr., who said the BSP may cut rates by a total of 50 bps this year. Already, Remolona had ruled out the possibility of a 75-bp cumulative cuts for 2024, arguing that such a move may spook the market.
But Remolona and Capital Economics both shared the same view that the easing cycle might start in August, and likely ahead of the US Federal Reserve.
In a separate report, Miguel Chanco, economist at Pantheon Economics, said the softer June inflation print of 3.7 percent laid the groundwork for the BSP to cut next month.
“Overall, our below-consensus 3.3 percent full-year average inflation forecast for 2024 remains appropriate, with risks skewed only slightly to the upside,” Chanco said.
”We forecast the same rate for 2025 and still see the BSP cutting its benchmark rate by 75 bps this year and 50 bps next year,” he added.